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D-Day Approaching For GM: Chapter 11 Likely, Holden In Waiting Mode Photo:
Tim O'Brien | May, 25 2009 | 1 Comment

WITH THE JUNE 1 DEADLINE for restructure now just days away, reports that GM is likely to file for Chapter 11 bankruptcy next week are gaining ground in the US.

Both the Washington Post and Associated Press are leading with the view that President Barack Obama will bring the curtain down on GM next week, putting the automaker into a ?managed? bankruptcy. The US Government will also ? according to the Washington Post ? prime GM with an additional US$30 billion to keep it afloat while it completes its reorganisation under Chapter 11 protection.

Should this occur, having already given GM a US15.4 billion bail-out lifeline, the additional loans will give the US Government at least half ownership in the once-unassailable corporate colossus. (These are strange days indeed.)

In truth, Chapter 11 for GM has been looking as certain as sunrise for months.

With sales of its cars and trucks halved year-to-date (down 47 percent on last year ? a year that was also a crook one for the US automaker), and with its revenues also having halved (from US$42.4 billion to US$22.4 billion in the first quarter), GM has been losing revenue faster than it can restructure and trim operating costs.


The problem for GM, as we commented in an earlier piece, is that despite having cut US$3.1 billion in operating costs, its decline in revenue from sales is wiping away any beneficial effect of its cost-cutting measures.

GM has simply not been able to keep up with the scale of its losses in the showroom.

It has also not yet found buyers for its non-performing home brands, nor yet managed to shed its struggling European subsidiaries: Saab, Opel and Vauxhall.

Next week may have a tale to tell in those quarters. For Holden, caught up in the whirlwind, the next few days will simply be a matter of ?hanging tough? ? its destiny will likely be defined sometime following the June 1 deadline.

Will the US Government be taking a cleaver to GM? Having already indicated that it will be focusing more on returning GM to profitability than in protecting US jobs, the cleaver scenario is the likely outcome of a Chapter 11 reorganisation.


Of course, GM in Chapter 11 may present more than a few difficulties for Holden despite its performance in ?holding the line? in the toughest of economic circumstances. The problem with a parent undergoing reorganisation under bankruptcy, is that it puts everything on the table.

Certainly, getting production of the Cruze into the local operation will have strengthened Holden?s hand in its negotiations for its future in the GM pantheon.

But, as Holden?s Media Manager Scott Whiffin told TMR last week: ?I think we?re operating in a world where there aren?t too many guarantees but Holden continues to export vehicles to a number of markets around the world, just as we continue to look for new opportunities.?

While we have to keep our fingers crossed for Holden, simply hoping for the best isn?t enough - we also have to buy our local cars if we want to retain a viable local industry.

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